Here’s a link to the latest quarterly musings of Jeremy Grantham, always informative, thought-provoking and entertaining. Titled “Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever,” here’s a nice little taste:
Now no one, in round numbers, wants to buy into the implication that we must rescale our collective growth ambitions. I was once invited to a monthly discussion held by a very diverse, very smart group, at which it slowly dawned on my jet-lagged brain that I was expected to contribute. So finally, in desperation, I gave my first-ever “running out of everything” harangue (off topic as usual). Not one solitary soul agreed. What they did agree on was that the human mind is – unlike resources – infinite and, consequently, the intellectual cavalry would always ride to the rescue. I was too tired to argue that the infinite brains present in Mayan civilization after Mayan civilization could not stop them from imploding as weather (mainly) moved against them. Many other civilizations, despite being armed with the same brains as we have, bit the dust or just faded away after the misuse of their resources. This faith in the human brain is just human exceptionalism and is not justified either by our past disasters, the accumulated damage we have done to the planet, or the frozen-in-the-headlights response we are showing right now in the face of the distant locomotive quite rapidly approaching and, thoughtfully enough, whistling loudly.
Anyone betting that manufacturing will continue to lead the US economic recovery might think twice after reading comments from survey respondents in Dallas Fed’s April Texas manufacturing outlook.
Similar to Philly Fed’s gauge last week, Dallas headline number tanked, to 8.1 from 24.1 in March. The Philly survey’s headline number fell to 18.5 from 43.4 in March, but unlike the Dallas survey, Philly doesn’t include respondent comments in its report.
Down in Texas there’s a fair measure of cautious optimism among survey respondents, and plenty of concern about high costs and soft demand. Here’s one from a plastics and rubber products manufacturer that sounds pretty good:
“We are very encouraged by the breadth of activity with our cross section of customers in the Dallas–Fort Worth area. It is not just a few companies with increased requirements for plastic parts, but pretty much all of our diverse customer base.”
Now here’s one from the other end of the spectrum, a furniture/related product manufacturer: “Our industry has hit another brick wall. Rapidly increasing costs and fuel costs have shocked the consumer away from any nonmandatory spending. They normally adjust, but it may take several months.” Continue reading…
Economists seem generally unfazed by the drop in ISM’s March non-manufacturing index, with most rationalizing that after some strong gains it was due to ease, and all readings still signal expansion.
Goldman Sachs noted the headline decline “was driven by a sharp drop to 59.7 from 66.9 in the business activity index — the biggest drop since late 2008 — which is the component we have found to be most closely correlated with GDP growth.”
Firm notes it’s “the first meaningful disappointment in a business survey in several months, so it deserves some attention.” Nomura points out that the decline narrows “the general divergence” seen recently “between hard data and survey-based data.”
Our favorite observation following the ISM services report comes from RDQ Economics, aimed at the Fed’s tale on rising commodity prices.
“The broad-based nature of price increases make the Fed’s assertion that commodity price increases are demand driven and have nothing to do with ultra-easy monetary policy nonsensical,” the firm said. To further illustrate the absurdity, roofing shingles were listed in the report among commodities reported “up in price.” Roofing shingle prices “are rising in the U.S. because of demand even though there is very little building going on?” RDQ very appropriately wonders.
Which brings us once again to Chairman Bernanke and his comments last night. Newswires Michael Derby reported that Bernanke said that the rise in global commodity prices — which is all demand driven, mind you — will be transitory and prices “will eventually stabilize.”
If you buy the Fed’s demand-driven thesis, then demand — particularly in Asia and emerging markets — needs to cool off a lot, and cool off quick in order for commodity price gains to prove to be temporary. The necessary sharp pullback in global growth, and particularly in emerging-market growth, is not a widely held view, as far as we’re aware.
The run-up in commodity prices may indeed prove temporary, but only after the Fed finishes with QE II and then begins to signal an interest in drawing down the liquidity it’s poured into the global financial system.
Clearly some strong readings in the January ISM report, notably in the prices index. Perhaps the most informative section contains the following:
Commodities up in price: Aluminum; Aluminum Products; Brass; Brass Products; Caustic Soda; Chemicals; Copper; Copper Based Products; Corn; Corrugated Containers; Diesel; Freight Rates; Fuel Oils; High Density Polyethylene; Lubricants; Nuts; Packaging Materials; PET; Plastics; Plastic Products; Plastic Resins; Polyethylene Resin; Polypropylene; Soybean Oil; Stainless Steel; Stainless Steel Products; Steel; Steel Products; Steel Surcharges; and Sugar.
Commodities reported down in price: none.
Here’s the kicker. Commodities reported in short supply: “Electric Components is the only commodity reported in short supply,” ISM said. A list of 30 commodities with rising prices (many soaring), not a single commodity falling in price. One commodity reported in short supply.
So much for that time-worn economic model for price determination in a market. Continue reading…
Good year in 2010 for US stocks, not such good one for Byron Wien’s list of “top ten surprises.” As a strategist, and now Blackstone vice chair, He’s been doing this a long time. Doesn’t mean he’s getting any better at it, though.
By our count, he was completely wrong on eight of his predictions, mostly wrong on his No. 1 (GDP would grow at 5% real rate, unemployment would drop below 9%; S&P 500 operating earnings would come in above $80 — that looks safe.)
Big swing and a miss on the following:
- Fed would raise interest rates, with Fed funds rate at 2% by year end. We’ll be lucky if that one happens by 2012.
- Yield on 10-yr note would go to 5.5%. See above. Equally fanciful.
- S&P rallies to 1300, then falls below 1000 and ends year at 1115. Nice try. Not even close.
- Dollar rallies vs yen and euro, with EUR/USD dropping below $1.30. Briefly correct on that one, but didn’t last.
- Congress would pass bills providing loans and subsidies for new nuclear power plants. Didn’t happen.
- Democrats would only lose 20 House seats in November. Whoops.
- Civil unrest reaches crescendo in Iran, Ahmadinejad gets pushed out. Also didn’t happen.
Posted by Steven Russolilloon December 22, 2010 Economy, GDP, Markets, Oil /
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Kathleen Madigan, Donna Kardos Yesalavich and I discuss the final 3Q GDP revision as well as how surging commodity prices look good but may hurt company balance sheets come 2011. Check it all and more on today’s markets hub:
Hope you’re not still wondering about the effectiveness of the Fed’s QE2 program, as there should be no more debate: Dow Industrials close at their highest level since August 2008; S&P 500′s highest close since early Sept 2008; go back almost three years to see Nasdaq close at this level.
Fed officials have proffered that one ambition for QE2 was to help increase stock prices. Well, mission accomplished so far. Sure, it’s lighter, pre-holiday trading, but gains are gains, right bulls?
Feel wealthy, citizens? Case closed.
Financials soar, followed by materials and energy. CAT, IBM and JPMorgan contribute 50% of the Dow’s gain. DJIA rises 55.03 to 11533.16, and Nasdaq Comp climbs 18.05 to 2667.61. S&P 500 ends 7.52 higher at 1254.60. Continue reading…
It’s getting harder and harder to find bears lately, with major stock averages forging two-year highs. And even one consistent, well-known bear — Gluskin Sheff’s David Rosenberg — is a shade less bearish.
Rosenberg in his daily morning “musings” today carries just a hint of submission, though he’s quick to say he’s not changing his views – he remains a secular bond bull, sees GDP growth only around 2% next year and “core inflation will remain in a declining trend.”
But while he sees some European countries needing to undergo debt restructuring, which would raise risk premia in general, “this will likely take more time to play out than I had thought before,” Rosenberg writes. For now, “expect upward revisions to Q4 and by extension Q1 2011 GDP and hence earnings; therefore, over the near-term, it may not be a bad idea, tactically, to lighten up on the bearishness,” Rosenberg says.
It’s not a big change, just “think of it as a company lifting the bottom of its revenue forecasts,” he adds. Continue reading…
As it turns out, our hunch was correct that October wholesale inventories would come in higher than expected. Nothing extraordinarily insightful behind that call, just an observation that both wholesale and business inventories have been surpassing (by a rather wide margin) economists’ expectations since July.
The general perception is that these bulkier-than-expected inventory gains are positive — they’re viewed as an indication that confidence in future sales prospects is goading companies into more inventory building. We’re skeptical, for a couple reasons, and have another hunch — that at least some of these larger-than-expected inventory gains are unintentional, and could eventually lead to another round of liquidation if demand doesn’t catch fire. Continue reading…
Dallas Fed’s stronger Nov Texas manufacturing survey follows solid regional reports from other Fed branches, though the mix of Texas respondents’ comments continue to sound measured, at best.
“We are cautiously optimistic,” says a fabricated metal product manufacturer. “We have seen an increase in business coming from several areas,” a chemical maker says, and customers “are now reordering.” A beverage & tobacco product maker said the local economy “has improved slightly here in East Texas.”
That’s about as good as it gets.
Plastics & rubber: “Overall business is still slow.” Furniture: “More dealers are barely holding on, and we are hearing rumbles of one or two major companies getting ready to file for bankruptcy.” Machinery says orders “continue to be very uneven,” and future growth is expected to come from winning more market share, “but we are in a market that is experiencing very little real growth.” A food manufacturer says high dairy and sugar prices “are really hurting us, and a weaker dollar does not help.”
J.P. Morgan reported some strong earnings today. But what this bloggers eye were some of the sub-numbers in the earnings report. The bank booked $1.8 billion in investment banking fees. But don’t be fooled – that wasn’t from big M&A advising. But $429 million was in advisory fees. Instead, that $1.3 billion + remaining fees […]
If ever a restaurant chain was growing the right way it’s Noodles & Co., a Broomfield, Colo.,-based chain that just announced an initial public stock offering. Noodles, founded in 1995, has grown steadily through booms and busts to 339 locations. It’s secret: Delicious healthy offerings, a diverse menu and great service for a fast casual […]
